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The impact of monetary policy on climate change through the mediation of sectoral renewable energy consumption

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  • Akan, Taner

Abstract

The catastrophic effects of climate change are forecast to reach their peak between 2023 and 2027, requiring to expedite energy transition using most fundamental and accurate energy and economic policy measures. This study aims to investigate the climate change impacts of monetary policy and renewable energy, which are the main tools for economic policy and energy transition, respectively. Prior research has investigated the impact of monetary policy on climate change by focusing on its direct effect. This study posits that its impact on climate change occurs not directly but indirectly through the mediation of financial asset prices, sectoral output, and renewable energy consumption. The analysis is hence conducted using bootstrapped structural equation modeling. The study utilizes (i) stock prices and bank credits as proxies for financial assets, (ii) production in industrial and transportation sector and consumption in residential sector as proxies for economic sectors, and (iii) the use of biomass, solar, geothermal, hydropower, and wind energy as proxies for renewable energy. The study has arrived at two major results. First, the linear and nonlinear indirect effects of monetary policy on climate change vary from −0.05% to 0.10% in the industrial sector, −0.78%–1.14% in the residential sector, and −0.04%–0.03% in the transportation sector. Second, aside from being sector-specific, these impacts are also energy-specific, effect-specific, shock-specific, finance-specific, and time-varying. The study provides pertinent policy recommendations for governing the indirect effects of monetary policy on sectoral renewable energy strategies.

Suggested Citation

  • Akan, Taner, 2024. "The impact of monetary policy on climate change through the mediation of sectoral renewable energy consumption," Energy Policy, Elsevier, vol. 192(C).
    • Handle: RePEc:eee:enepol:v:192:y:2024:i:c:s0301421524002647
    DOI: 10.1016/j.enpol.2024.114244
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